Purchasing a Franchise.

1. EMOTIONAL BUYING

This is the typical ‘heart versus head’ dilemma – whilst it can be argued all buying is emotive. I have witnessed potential franchisee’s deciding to purchase a franchise despite the numbers not adding up. They have been sold the dream by highly motivated franchisors or franchise broker, flashy brochures and sparkling promo videos. These can create an adrenalin rush which can swing to a bad case of buyers’ remorse once reality kicks in. I’m aware of some purchases being made on the ‘hip’ factor alone – some situations where the price paid for a franchise is well in excess of what a reasonable ROI – some cases you would be better off investing your money on term deposit.

2. THE MYTH OF BEING YOUR OWN BOSS – the grass is greener 

We read of the mass exodus of New Zealanders fleeing our shores to the greener grass of Australia (the Promised Land). What we don’t hear is the number of people returning. The grass on the other side still needs  to be mowed.

I’ve seen people motivated to buy a franchise because they see it as an opportunity to rid themselves from the bonds of being a ‘wage slave’ and a chance to live the kiwi dream of being you ‘own boss’. Whilst this in itself is not a wrong motivation it needs to be tempered with the flames of reality – the buck stops with you. Having the right expectations of what is involved in running a franchise is vital. I have heard the lament of some franchisees that were better off earning wages. They are working longer hours with fewer holidays and no sick pay and more stress. If you haven’t done your home work properly before you buy a franchise this can be detrimental. You need to work out the realistic earning potential of your franchise. How many cups of coffee/lawns to mow do you need to sell to break even or make a decent wage? How many staff do you need to employ? Investing in the right advice before you launch is critical. This homework process is called due diligence and using an accountant experienced in the franchise market is imperative.

3. BAD FIT – the holiday romance

My daughters buy shoes based on how they look not on comfort, function or fit. So it can be with some when buying a franchise – getting the right ‘fit’ is important – the fit for skill sets, life goals, family needs and budget. There is an array of factors you must survey before you engage in a franchise business. Franchising is like entering into a ‘marriage’ – check the contract! The things that attract you in the beginning can be the very things that annoy you once the ‘honey moon’ period is over. Compatibility on a number of levels, including financial, needs to be researched well.

4. UNDERCAPITALISED (A BRIDGE TOO FAR)

There is a famous war movie ‘a bridge too far’ -in the movie they drop behind enemy lines and try to take the strategic bridges that allow supplies to flow to the front lines. They all but succeed in this brave mission but stretch themselves to thin – they run out of ammo and are overrun before help can come. This can be applied when purchasing a franchise. All business ventures – Franchises included – have an element of risk. Involving a franchise accountant to assist you with the process of making a ‘calculated risk’ is essential. Running out of ammo can be likened to running out of cash. Cashflow planning, budgeting, working capital need assessment, KPI sensitivity analysis must be through worked through with a an experienced franchise accountant.FREE REPORT

5. PROFIT Vs POTENTIAL (Pot of Gold at the end of the rainbow)

Dreams are free. Green field opportunities can be likened to buying an idea versus buying a business – with no proven business model purchasing this type of franchise opportunity possesses its own unique challenges, pitfalls and rewards. This type of franchise opportunity needs due diligence, a business plan and budgeting to convert the idea into a viable business. The pot of Gold at end of rainbow needs GPS co ordinates to tie it down. Seeking advice from a franchise accountant will help plot these. These will include planning your cash flow, assessing your working capital needs, quantifying an acceptable ROI, and other related matters.

6. COMMERICALLY NIAVE (BUSINESS VIRGINS/NOVICE)

The benefit of purchasing a franchise is that you can leverage off proven business models, systems with the support of your franchisor. This translates into lower failure rates and is why banks see a proven franchise business favourably.

However these benefits do not guarantee success. You can purchase the latest model Lexus or BMW with ABS, traction control, GPS, safety air bags and put a ‘learner driver’ in it and you have the recipe for an accident waiting to happen. In the same way you can’t buy experience and the ‘business novice’ can’t expect to buy guaranteed results from a good franchise if they don’t have some commercial experience to draw from. In addition to the FSR the franchise offers, they may need to engage the support of an experienced franchise accountant until you have the confidence to the learner wheels can be removed.